In a recent paper, Collin-Dufresne and Goldstein (2002) show that the movements of the yield curve and of interest rate derivatives are mostly uncorrelated, advocating the presence of unspanned volatility. This letter shows that their results can be explained in the framework of a Gaussian HJM...

We consider the option pricing model proposed by Mancino and Ogawa, where the implementation of dynamic hedging strategies has a feedback impact on the price process of the underlying asset. We present numerical results showing that the smile and skewness patterns of implied volatility can...

Equity returns and firm's default probability are strictly interrelated financial measures capturing the credit risk profile of a firm. Following the idea proposed in [20] we use high-frequency equity prices in order to estimate the volatility risk component of a firm within Merton [17]...

We discuss the impact of volatility estimates from high frequency data on derivative pricing. The principal purpose is to estimate the diffusion coefficient of an Itô process using a nonparametric Nadaraya–Watson kernel approach based on selective estimators of spot volatility proposed in the...

In this paper we consider the optimal impulse control of a system which evolves randomly in accordance with a homogeneous diffusion process in ℜ<Superscript>1</Superscript>. Whenever the system is controlled a cost is incurred which has a fixed component and a component which increases with the magnitude of the control...</superscript>

We propose a new methodology based on Fourier analysis to estimate the fourth power of volatility function (spot quarticity) and, as a byproduct, the integrated function. We prove consistency of the proposed estimator of integrated quarticity. Further we analyze its efficiency in the presence of...